18 Sep 2008 07:00
LONDON ASIA CHINESE PRIVATE EQUITY FUND LIMITED
RESULTS FOR THE YEAR ENDED 31 MARCH 2008
| HIGHLIGHTS Net assets at 31 March 2008 £71.7 million (2007: £66.5 million), up 7.7% in the year; Net assets equal to 143.32 pence (2007: 133.05 pence) per share; Profit for the year £5.1 million, equal to 10.28 pence per share; Profits of £1.7 million realised in the year from the sale of investments; Other income of £1.1 million; Investments up 63% on cost; Appointment of Richard Battey as an additional non-executive Director and Diana Chen as Chief Operating Officer; and Proposed change of name of the Company to China Growth Opportunities Limited. | ||
| For further information please visit www.lacpefund.com or contact: | ||
| Simon Littlewood London Asia Chinese Private Equity Fund Limited Tel: +44 78 0285 7287 | John West / Andrew Dunn Tavistock Communications Tel: +44 20 7920 3150 | Hugh Field Collins Stewart Europe Limited Tel: +44 20 7523 8000 |
| CHAIRMAN'S STATEMENT |
| I am pleased to present the results of London Asia Chinese Private Equity Fund Limited (the "Company") and its subsidiary (together the "Group") for the year ended 31 March 2008. The Group has maintained its objective over the year of providing shareholders with capital growth from investing in a portfolio of companies whose business operations are based in China. Results Despite a very difficult business environment, your Group made solid progress during the year. The Group achieved a net profit for the year ended 31 March 2008 of £5.1 million, representing earnings per Ordinary Share of 10.28 pence. The net asset value at 31 March 2008 was £71.7 million (2007: £66.5 million), equal to 143.32 pence per Ordinary Share, an increase both over the 30 September 2007 net asset value of 136.71 pence and the 31 March 2007 net asset value of 133.05 pence. During the year the Group realised its entire holding in two investments and part of a third for £3.3 million at a very satisfactory profit of £1.7 million. The Group re-invested £2.5 million of these proceeds in June 2007 and now holds thirteen investments, which cost £44.4 million. At 31 March 2008 the investments had a fair value of £72.3 million (2007: £65.9 million), an unrealised gain of 63% on cost, and an increase of £6.4 million during the year. £9.5 million (13%) of the investments have been stated at original cost. Investments with an original cost of £34.9 million have been shown at a fair value of £62.8 million. Fair value was determined based on market price where the stock was quoted and there was deemed to be a liquid and active market, latest financing valuation where follow on financing was achieved, or a multiple of post tax profits for those investments illiquid, not quoted or re-financed. Of the thirteen investments, two were already listed in Singapore at the time we invested, and four floated on London's PLUS Market ("PLUS") post our investment. As at 31 March 2008, 49% of our investment portfolio (by fair value) was quoted on a combination of the Singapore Stock Exchange's Main Board and Catalist and PLUS. Investment Environment Since my appointment I have visited a number of portfolio companies and the Non-Executive Directors plan further portfolio visits in the fourth quarter of 2008. During the year, China's economy continued to record strong growth, though this has tailed off since the year end amid mounting concerns of the global slowdown, high commodity prices and inflation impacting Chinese growth. The Chinese Government adopted a policy of trying to dampen growth in order to reduce inflationary pressures and supply shortages, dampen speculation and attempt to allocate resources to more efficient, productive projects. These measures have included restrictions on lending by local banks, continuing controls on non-Chinese bringing money into China, and greater controls over licensing and permissions for projects. These measures have coincided with the global credit crunch and falling stock markets, with the Chinese stock market down over 50% from its October 2007 peak. This has resulted in a more difficult climate in which to realise investments, and to obtain new funding for our portfolio companies, particularly debt and structured finance, where it has been difficult to secure funding, or the terms are considerably less attractive than those previously available. This has had a significant negative impact on several of our investments, particularly the Singapore stock market listed water businesses, United Envirotech Limited and Asia Water Technology Limited, which are dependent on debt finance to expand their operations, and saw considerable falls in value over the period and since the year end, which will impact on our 30 September 2008 half yearly results. China's rising currency, and a series of natural disasters, including some of the worst storms seen in decades and the Sichuan Earthquake, have also negatively impacted on China's economy and the performance of our investments. The diversion of central and local government resources to the disaster zones has led to delayed projects and payments for several of our investee companies. With the Olympics now behind us, the fallout from Sichuan settling down, and rumours that the Chinese Government is going to relax some of the previous controls introduced to damped the economy and bring in an economic stimulus package, it is to be hoped that conditions will ease going forward to counteract the impact of the expected slowdown in the global economy. Change of Company Name The Board is proposing changing the name of the Company at the Annual General Meeting to "China Growth Opportunities Limited", which better describes the Company's operations and structure. Operational Update The past year has seen significant follow on financings for a number of our portfolio companies, as well as two complete and one partial realisation. There has been only one new investment, made in June 2007, compared to fourteen in the previous year, reflecting the shift in emphasis from investing to realising the value of the portfolio. During the year PricewaterhouseCoopers CI LLP were appointed as Independent Auditors. There have been a number of changes in personnel, as the Group moved from a period of raising and investing funds, to managing and realising investments. In June 2008 the Group appointed Diana Chen, based in Beijing, China, as Chief Operating Officer, with specific responsibility to ensure that adequate financial information is available from our portfolio companies to improve our own financial reporting. Diana is a qualified CPA and has worked in China for two of the world's leading accountancy firms. Following her appointment, we hope to be able to provide more regular reporting of net assets for the Group. I was appointed as Chairman on 24 July 2007, following the departure from the Board of Mr Manser and Mr Hill. I am pleased to welcome Richard Battey to the Board, as an independent non-executive Director. He is a Chartered Accountant, a Guernsey resident and has extensive experience of investment management. After the Company's AGM he will take over from me as Chairman of the Audit Committee. These appointments complete the re-organisation which I initiated in my first year as Chairman and I am confident that we have a good executive and non-executive team to take your company forward. The shares of the parent company of the Investment Consultant, London Asia Capital Plc, were suspended from trading on AIM on 4 June 2008 as it was unable to publish its report and accounts. As at the time of writing this report, the suspension remains in place. The suspension of London Asia Capital Plc's shares has not affected the ability of the Investment Consultant to fulfil its duties to the Company. However, the Board is concerned that the suspension of London Asia Capital Plc's shares may have adversely affected the price of the Company's Ordinary Shares and Warrants. Outlook I am confident that the price at which the shares in your company trade on the AIM market in no way reflects the Group's true value. In the last year, we have seen very difficult market conditions stemming from the credit crunch and this has affected sentiment towards investment companies in emerging markets. It would be foolish at this stage to have a 'fire sale' of the Group's assets to prove that the business has significantly greater value than indicated by the current share price. Clearly however circumstances have changed since the flotation and we currently envisage more trade sale realisations than IPOs. We shall endeavour to achieve a few meaningful realisations or part-realisations in the next twelve months to demonstrate the quality of our portfolio. It is important to remember the growing domestic prosperity of China and the rise of a middle class - amply demonstrated by the recent Olympic Games. Our investments are not targeted at mass market, Chinese exporting companies. Our investment focus on clean technology, consumer products and services fits closely with the Chinese Government's objectives for the near and medium term. The solid investment performance of your company illustrates that there remain opportunities in the Chinese market for carefully selected businesses in the right sectors. Whilst other competing investments and markets have suffered, your portfolio is well placed to prosper in the medium term, however, due to current market conditions we expect the value of some of our investments to have fallen in the six months to September 2008. |
| R Leighton 17 September 2008 |
| INVESTMENT CONSULTANT'S REPORT |
| Overview This is the Group's second set of audited accounts since it was launched in March 2006. Since we reported last year, the Chinese stock market has fallen over 50%, partly a reflection of the over exuberance and massive liquidity seen in the earlier part of 2007, and partly a reflection of the impact on asset values of the credit crunch and slow down of the global economy. I am pleased to report that despite this very difficult background, the Group's investment portfolio (excluding investment transactions completed during the year) showed an 11% increase in value for the year to 31 March 2008, with the portfolio valued at the year end at 63% over original cost. We have not made any investments since June 2007. We have focused our efforts on realising our investments and raising additional funds for our portfolio companies to enable them to continue their development, with five of the thirteen investments having raised significant funding post our investment in them. Investment Environment The credit crunch affecting the global economy has had less impact to date in China than in many countries, but there are definite signs of a slowing down of the economy and a tightening of cash flows, as inflation in food, energy and other essentials impacts on spending power within China, overseas markets weaken, and cheap, easily available finance dries up in the wake of problems in the global financial sector. Until recently the thrust of China's economic policy had been to slow down excessive growth, which was fuelled by strong demand for Chinese products overseas and excess liquidity in China. With the global economy slowing, China is considering relaxing some of the controls introduced over the last couple of years and introducing a stimulus package to develop the internal market and reduce the impact of weaker markets in the West. Although in the short term we anticipate tougher conditions for our portfolio, the development of a larger consumer market within China and increased infrastructure expenditure, particularly in the water and clean technology sectors, should benefit our portfolio. A significant change during the year has been the emergence of private equity firms within China, often backed by provincial or national Government. These, together with State Owned Enterprises and Chinese listed businesses who took advantage of soaring stock market valuations prior to the crash to raise large sums, have increasingly replaced foreign investors in investing in Chinese businesses. We anticipate a shift to more sales of our stakes to Chinese buyers in the coming year and a move away from IPOs or re-financings outside China. Portfolio Valuation Having anticipated the slowdown, at the time we invested we structured the portfolio to be relatively defensive, focusing on food, education, and clean technology, sectors which are less impacted by a global slow down. 72% of the portfolio by value as at the year end was invested in energy and clean technology stocks. Rising fossil fuel costs and shortages have added extra impetus to moves both within and outside China to develop renewable energy, making it more competitive and increasing the potential market. China's Eleventh Five-Year Plan (2007-2012) emphasized "giving priority to energy conservation". In the capital markets, clean technology remains one of the few sectors where it is still possible to raise finance at good valuations. Of the Group's thirteen investments, two are listed in Singapore, and four traded on the UK's PLUS stock market, meaning that 49% of our investment portfolio by value as at the year end was quoted. Asia Water Technology Limited, United Envirotech Limited, China New Energy Limited, China Metal Packaging Group Company Limited and China CDM Exchange Centre Limited have all received significant new funding since we invested, underpinning the valuations placed on the portfolio. These financings have to some extent replaced IPOs. The money being raised to expand the businesses should enable them to take advantage of growth and acquisition opportunities in the more depressed environment likely to be prevalent for the near future, enabling them to grow to a size where the ultimate IPO is likely to be more successful and liquid given their bigger size, or they will be a more attractive candidate for a trade sale or PE acquisition. Outlook 2008 has to date been a tough year, and we anticipate the business environment getting tougher before picking up in the second half of 2009. We are generally pleased with the way the portfolio has performed, despite the difficult environment, and are putting in measures across the portfolio to preserve value and take advantage of the opportunities that this downturn presents. Our on the ground presence and over ten years' experience of operating in China, including through the last recession, puts us in a better position to identify opportunities and risks, and take advantage of the various sources of liquidity within China, as the traditional financial centres and less experienced investors struggle. S Littlewood and V Ng 17 September 2008 |
| INVESTMENT PORTFOLIO | ||||
| as at 31 March 2008 | ||||
| Company | Activity/Sector | Listing | Fair value range | |
| £m | ||||
| Asia Clean Energy Pte Limited | Clean energy | Not quoted | 3-5 | |
| Asia Water Technology Limited | Water | Catalist Singapore | 5-7 | |
| Asia Wind Group Limited | Clean energy | Not quoted | 3-5 | |
| China Biofoods Limited | Agriculture | PLUS | 3-5 | |
| China CDM Exchange Centre Limited | Carbon credit brokerage | PLUS | 7-10 | |
| China Metal Packaging Group Company Limited (formerly Canmake Business Limited) | Consumer | Not quoted | 7-10 | |
| China New Energy Limited | Clean technology | PLUS | 10-15 | |
| China Real Estate Services Limited | Property services | Not quoted | 3-5 | |
| China Solar Energy Company Limited | Clean technology | Not quoted | 2-3 | |
| Dalian Business Institute Limited | Education | PLUS | 3-5 | |
| Hainan Zhengye Zhongnong High Tech. Co. Limited | Agriculture | Not quoted | 2-3 | |
| United Envirotech Limited | Water | Mainboard Singapore | 3-5 | |
| Wan Wei Oil & Gas Technology Group | Energy | Not quoted | 7-10 | |
| The financial information set out in this announcement does not constitute the Group's statutory financial statements for the year ended 31 March 2008. | ||||
| CONSOLIDATED INCOME STATEMENT | ||
| for the year ended 31 March 2008 | ||
| 1 April 2007 to 31 March 2008 | 23 February 2006 to 31 March 2007 | |
| £'000 | £'000 | |
| Income | ||
| Net unrealised change in fair value of investments | 5,521 | 22,428 |
| Realised gain from sale of investments | 1,701 | - |
| Other income | 1,098 | 1,518 |
| ------------ | ------------ | |
| Total income | 8,320 | 23,946 |
| Expenses | ||
| Investment Consultant's fee | (1,376) | (1,009) |
| Performance fee | (1,285) | (3,345) |
| Introductory fees | (86) | (832) |
| Administration fees | (150) | (131) |
| Directors' fees | (51) | (93) |
| Audit fees | (87) | (29) |
| Custodian fees | (19) | (18) |
| Other expenses | (127) | (115) |
| ------------ | ------------ | |
| Total expenses | (3,181) | (5,572) |
| ------------ | ------------ | |
| Profit for the year/period | 5,139 | 18,374 |
| ------------ | ------------ | |
| Earnings per share - basic and fully-diluted | 10.28p | 36.75p |
| CONSOLIDATED BALANCE SHEET | |||
| as at 31 March 2008 | |||
| 31 March 2008 | 31 March 2007 | ||
| £'000 | £'000 | ||
| Non-current assets | |||
| Investments at fair value through profit or loss | 72,319 | 65,905 | |
| ---------- | ---------- | ||
| Current assets | |||
| Loan receivable | - | 335 | |
| Other receivables | 513 | 54 | |
| Cash and cash equivalents | 3,402 | 12,321 | |
| ---------- | ---------- | ||
| 3,915 | 12,710 | ||
| ---------- | ---------- | ||
| Total assets | 76,234 | 78,615 | |
| ---------- | ---------- | ||
| Current liabilities | |||
| Payables and accruals | (4,572) | (12,092) | |
| ---------- | ---------- | ||
| Net assets | 71,662 | 66,523 | |
| ---------- | ---------- | ||
| Capital and reserves attributable to equity holders of the Company | |||
| Share capital | 500 | 500 | |
| Other reserve | 2,293 | 2,293 | |
| Distributable reserves | 68,869 | 63,730 | |
| ---------- | ---------- | ||
| Total equity shareholders' funds | 71,662 | 66,523 | |
| ---------- | ---------- | ||
| Net Asset Value per Ordinary Share | - basic | 143.32p | 133.05p |
| - fully diluted | 143.32p | 130.87p | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | |||||
| for the year ended 31 March 2008 | |||||
| Share capital | Other reserve | Distributable reserves | Total | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Balance at 31 March 2007 | 500 | 2,293 | 63,730 | 66,523 | |
| Profit for the year | - | - | 5,139 | 5,139 | |
| ---------- | ---------- | ---------- | ---------- | ||
| Balance at 31 March 2008 | 500 | 2,293 | 68,869 | 71,662 | |
| ---------- | ---------- | ---------- | ---------- | ||
| for the period from 23 February 2006 to 31 March 2007 | |||||
| Share capital | Share premium account | Other reserve | Distributable reserves | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gross proceeds of placing | 500 | 47,207 | 2,293 | - | 50,000 |
| Issue costs | - | (1,851) | - | - | (1,851) |
| Cancellation of share premium account | - | (45,356) | - | 45,356 | - |
| Profit for the period | - | - | - | 18,374 | 18,374 |
| ---------- | ---------- | ---------- | ---------- | ---------- | |
| Balance at 31 March 2007 | 500 | - | 2,293 | 63,730 | 66,523 |
| ---------- | ---------- | ---------- | ---------- | ---------- | |
| CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2008 | ||
| 1 April 2007 to 31 March 2008 | 23 February 2006 to 31 March 2007 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Other income received | 626 | 1,486 |
| Performance fee paid | (1,606) | - |
| Investment Consultant's fees paid | (557) | (1,009) |
| Introductory fees paid | (141) | (636) |
| Administration fees paid | (125) | (100) |
| Directors' fee paid | (70) | (63) |
| Audit fees paid | (65) | (4) |
| Custodian fees paid | (16) | (19) |
| Other expenses paid | (117) | (129) |
| ---------- | ---------- | |
| Net cash outflow from operating activities | (2,071) | (474) |
| Cash flows from investing activities | ||
| Purchase of fair value through profit or loss investments | (10,466) | (35,021) |
| Sale of fair value through profit or loss investments | 3,276 | - |
| Loan to investee company | - | (335) |
| Repayment of loan to investee company | 333 | - |
| ---------- | ---------- | |
| Net cash outflow from investing activities | (6,857) | (35,356) |
| ---------- | ---------- | |
| Cash flows from financing activities | ||
| Proceeds from issue of Ordinary Shares and Warrants | - | 50,000 |
| Issue costs paid | - | (1,851) |
| ---------- | ---------- | |
| Net cash inflow from financing activities | - | 48,149 |
| ---------- | ---------- | |
| ---------- | ---------- | |
| (Decrease)/increase in cash and cash equivalents | (8,928) | 12,319 |
| ---------- | ---------- | |
| Cash and cash equivalents brought forward | 12,321 | - |
| (Decrease)/increase in cash and cash equivalents | (8,928) | 12,319 |
| Foreign exchange movement | 9 | 2 |
| ---------- | ---------- | |
| Cash and cash equivalents carried forward | 3,402 | 12,321 |
| ---------- | ---------- | |